Case: 11-30731     Document: 00511887784         Page: 1     Date Filed: 06/15/2012




            IN THE UNITED STATES COURT OF APPEALS
                     FOR THE FIFTH CIRCUIT  United States Court of Appeals
                                                     Fifth Circuit

                                                                            FILED
                                                                           June 15, 2012

                                       No. 11-30731                        Lyle W. Cayce
                                                                                Clerk

PEOPLES STATE BANK

                                           Plaintiff - Appellee - Cross-Appellant
v.

PROGRESSIVE CASUALTY INSURANCE COMPANY,

                                           Defendant - Appellant - Cross-Appellee



                  Appeals from the United States District Court
                      for the Western District of Louisiana
                                   5:10-CV-86


Before DAVIS, SMITH, and DENNIS, Circuit Judges.
PER CURIAM:*
        Progressive Casualty (“Progressive”) challenges the summary judgment
rendered in favor of Peoples State Bank (“Peoples”) allowing Peoples to recover
on its Financial Institution Bond issued by Progressive for the loss Peoples
suffered. The facts are largely undisputed.              Peoples had a long standing
business relationship with First Fidelity Mortgage Company(“First Fidelity”)
which made residential loans to individuals secured by a mortgage. After First
Fidelity closed a number of loans it presented to Peoples the loan package

        *
         Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.
   Case: 11-30731   Document: 00511887784       Page: 2   Date Filed: 06/15/2012



                                  No. 11-30731

(including in particular the mortgages it obtained to secure the loans) as
collateral for the loans Peoples then extended to First Fidelity. After First
Fidelity sold the loans and mortgages on the secondary market it used part of
the proceeds to repay Peoples. Three loan packages First Fidelity presented to
Peoples as collateral for loans are at issue in this case. All of these packages
contained falsified or fraudulent documents. Two of the loans were legitimate
but First Fidelity had already funded them through another lender. First
Fidelity employees forged customer signatures so that they could submit these
packages to Peoples as originals. The third loan package was completely
falsified.
      Peoples sought recovery for losses caused by the fraudulent collateral from
Progressive under Progressive’s Bond which provided coverage for credit issued
in reliance on forged documents in a variety of circumstances. Progressive
argued that coverage was not afforded primarily because Peoples failed to review
the submitted documents before it issued the loan.
      The provisions of the Bond that are in question provide coverage for:
      (E) Loss resulting directly from the Insured having, in good faith,
      for its own account or for the account of others,
             (1) acquired, sold or delivered or given value, extended credit
      or assumed liability, on the faith of, any Written, Original . . .
             (h) Security Agreement, which (i) bears a handwritten
      signature of any [relevant person] . . . which is a Forgery, or (ii) is
      altered . . .; [or]. . .
      (Emphasis added)

      The Insuring Agreement also required that the insured have physical
possession of the documents in question as a condition precedent to the insured’s
having acted on the faith of such items.
      The district court found that “on its face the Bond requires only reliance
and physical possession.” Peoples State Bank v. Progressive Cas. Ins. Co., 

, at *4 (W.D. La. 2011). The district court also found that Peoples

                                        2
   Case: 11-30731      Document: 00511887784      Page: 3    Date Filed: 06/15/2012



                                     No. 11-30731

satisfied the “on the faith of” reliance requirement because “it is undisputed that
Peoples extended credit . . . in exchange for a security interest in the loans and
mortgages, thereby relying on the documents as collateral . . . . Peoples would
not have extended credit . . . had it known the loan packages were counterfeit or
forged.”     Id.   It found no indication that either the Bond’s “reliance” or
“possession” requirements required review or verification of the documents, and
it declined to “read this heightened burden into the Bond where it is not stated.”
Id. We agree with the district court’s interpretation of the disputed clause in the
Bond.
         Peoples cross appealed, arguing that the district court erred in denying its
motion to alter or amend the judgment to allow it to claim statutory penalties
under La. R.S. 22:1892 and La. R.S. 22:1973, essentially for Progressive’s bad
faith refusal to pay its claim. Peoples had not requested penalties in its
summary judgment motion. The district court denied Peoples’ post-judgment
motion requesting leave to present the issue for the first time. We find no abuse
of discretion in this denial.
         For the reasons stated above and those stated in the district court’s careful
Memorandum Ruling of July 12, 2011, we affirm the judgment of the district
court.
         AFFIRMED.




                                           3